The European Parliament and EU national representatives reached the agreement late last night.

Under the agreement, bonuses will be capped at a year's salary, but can rise to two years' pay if there is explicit approval from shareholders.

The new rules will also help ensure that European banks hold enough good quality capital to withstand future economic and financial shocks.

The Taoiseach has defended the cap on bankers' bonuses after criticism from the Mayor of London.

At a news conference in Dublin after talks with the Presidents of the European Commission and the European Parliament, Mr Kenny said the agreement was an important step towards banking union.

He said that while London may have its own views, the agreement was a welcome development in the context of banking union, transparency and accountability.

Mr Kenny said it was also important to the people of Europe, who had borne the brunt of decisions taken by the banks in the past.

Martin Schulz, the President of the European Parliament, said the aim of the bonus rule was to decouple decision making from risky behaviour, though he acknowledged it might not improve relations between the UK and the EU.

He said capitalists say they do not want rules, but once the rules are there they will continue to try to do business.

Minister Noonan said: "The overhaul of EU banking rules will ensure that taxpayers across Europe are protected into the future."

He said that as president of the EU, Ireland had to balance many different interests.

That includes the desire to limit bankers' pay, while maintaining a competitive European banking sector and the need to provide a single but sufficiently flexible rulebook across Europe.

The deal will now be presented to EU country ambassadors.

The backing of a majority of EU countries is needed for the deal to be finalised.

Speaking on RTÉ's Today with Pat Kenny, Minister Noonan said the main point of the deal was to ensure that banks have enough capital.

Mr Noonan said occasionally in the banking industry, individuals took excessive risks to inflate profits and then enjoy big bonuses, but it became clear that such risks damaged banks and shareholders.

He said the issue of limiting bankers' bonuses was driven by a "desire to reduce risks... but if it does not work out and there are a lot of transfers to Singapore etc, there will be a review in 2016".

When asked about how the decision to end the Eligible Liabilities Scheme was received in Europe, the minister said: "We got very few phone calls, it has been absorbed into the system and there is no sign of any difficulty whatsoever.

"The comments seem to be approving, both domestically and internationally. So we've got it over the line and it will end with a whimper at the end of March."